Why The Market Loves Yellen’s Fed

Speak softly and move slowly. That appears to be the Federal Reserve’s version of Theodore Roosevelt’s mantra.

Minutes from the Fed’s Open Market Committee meeting showed that the Fed members believe in a slow exit from stimulating monetary policy and are not concerned about inflation, thanks in large part to a “subdued” labor market. Fed members also believe in broadcasting their intentions well before taking additional steps to cut back on accommodative monetary policy, such as allowing benchmark interest rates to rise.

Though the minutes showed Fed members discussed a variety of options for normalizing monetary policy, it made clear that they did not settle on a course of action and that the Committee plans to communicate its policy decisions “well before the first steps in normalizing policy become appropriate.”

"@BobBrinker: $FED FOMC "Participants generally agreed that starting to consider the options for normalization at this meeting was prudent""

Investors generally responded positively to the minutes’ release. The major indices remained solidly in the green an hour after the minutes became public. And some investors expressed confidence that the Fed would not take any brash action to spook investors.

Looks like former #FMOC member Alan Blinder @WSJ was right…may the $FED exit strategy go as smooth as today's meeting minutes release!

Fed members noted that, though economic growth “paused” in the first quarter, activity heated up along with the weather. However, as far as the Fed was concerned, the increase in economic activity in the second half of the quarter did little to push up prices. The consumer price index was about 1% higher than a year earlier. “Consumer price inflation continued to run below the Committee’s longer-run objective, but measures of longer-run inflation expectations remained stable.”

Some investors said the Fed’s view on price inflation was out of touch with reality. They pointed to higher prices at the gas tank and grocery store as evidence of inflation.

$FED is so unbelievably clueless! No inflation? Try rent, housing, food, health care, gas, electricity, etc. But that's not in their reality

But Fed members argued that joblessness will reign in prices for some time. The unemployment rate stayed at 6.7% in March and hiring “continued to be subdued.” And, though unemployment declines coaxed some workers back into the job force, the share of forced part time workers remained “well above” pre-recession levels, showing that the labor market still has a ways to recover.

Some investors took the Fed’s emphasis on the lackluster job market as evidence that rate hikes were a long way off. And they argued that the lack of yield elsewhere would continue to fuel the stock market and the gold trade as investors sought ways to protect the value of their cash.

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